**China’s Major Economic Initiative: Implications for Cryptocurrencies**
In a long-anticipated move, the People’s Republic of China has unveiled a significant stimulus package aimed at revitalizing its sluggish economy. This development could have ramifications for the cryptocurrency market as well.
**Author:** Mete Demiralp
**Date:** 24.09.2024 – 12:54
**Update:** Just now
Today, the central bank of China introduced its most comprehensive stimulus measures since the onset of the pandemic, seeking to reinvigorate the world’s second-largest economy and align it with the government’s growth objectives. However, experts caution that without further fiscal intervention, these measures may fall short in addressing the country’s deflationary pressures and structural issues.
The People’s Bank of China (PBOC) has rolled out an extensive array of interest rate reductions and increased funding to stimulate economic activity. This initiative follows a series of disappointing economic indicators that have sparked fears of a prolonged recession. While the PBOC’s actions aim to restore confidence amidst diminished consumer and business demand, analysts remain skeptical about the effectiveness of this stimulus in driving growth.
“This marks the PBOC’s most substantial stimulus package since the pandemic’s early days,” noted Julian Evans-Pritchard, an analyst with Capital Economics. Nonetheless, he added that “it may not suffice on its own,” indicating that additional fiscal stimulus will be essential to meet China’s official growth target of approximately 5% for the current year.
The response in financial markets has been optimistic, with Chinese equities and bonds experiencing an upturn, and Asian markets reaching their highest points in two and a half years. The yuan has also appreciated, hitting its strongest valuation against the US dollar in 16 months. PBOC Chairman Pan Gongsheng has detailed plans to reduce borrowing costs, enhance liquidity, and alleviate the mortgage repayment burdens on households.
Key measures include a 50 basis point cut to banks’ reserve requirement ratios (RRR), unlocking around 1 trillion yuan (approximately $142 billion) for new loans. Pan suggested the possibility of further RRR reductions of 0.25 to 0.5 points later this year, contingent on market liquidity. Additionally, the PBOC will lower the seven-day reverse repo rate by 0.2 points to 1.5%, among other rate adjustments.
“This action may have come a bit late, but it’s better late than never,” commented Gary Ng, a senior economist at Natixis, emphasizing the necessity of a lower interest rate environment to bolster economic confidence.
Recently, major investment banks such as Goldman Sachs, Nomura, UBS, and Bank of America have revised their 2024 growth projections for China downward.
*This article does not constitute investment advice.*
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